Business Line : Features / Mentor : Singapore, a preferred tax haven

Business Line : Features / Mentor : Singapore, a preferred tax haven

Capital gains aren't taxed, inheritance taxes aren't charged, and individuals are taxed only on income earned in Singapore.

A Canadian company is in the process of investing in India and examining modes of investments that will make its overall global tax rate most effective. The company is convinced that the investment may be made through a tax haven to achieve this goal, and the key command decision lies in routing the investment to India.

BENEFITS OF TAX HAVENS

An understanding of tax havens will help the decision process. A tax haven is a country that offers foreign individuals and businesses little or no tax liability in a politically and economically stable environment. Tax havens provide almost no financial information to foreign tax authorities.

The main benefits of investing in a tax haven accrues from the fact that they offer a range of taxation levels from which to choose, allow for the creation of offshore entities to increase privacy, and have complex and detailed legislation to protect investors' assets. Andorra, the Bahamas, Belize, Bermuda, the British Virgin Islands, the Cayman Islands, the Channel Islands, the Cook Islands, Hong Kong, the Isle of Man, Mauritius, Lichtenstein, Monaco, Panama, Switzerland, St Kitts and Nevis are all considered to be tax havens.

Many foreign institutional investors route their investments into India through one of these tax havens, so that the benefits of capital gains as well as dividend taxations are idealised. The recent past witnessed many such investments routed through Mauritius which, till recently, was the preferred destination for this purpose. Though Mauritius is a proven tax haven, disturbing stories regarding this country and the review of the Double Taxation Treaty with this country are forcing genuine investors to look at some other alternatives. Pressure from foreign governments, which want to collect tax revenue heretofore perceived by them to be hidden in havens, has caused some tax havens to sign tax information exchange agreements and mutual legal assistance treaties. This provides foreign governments with formerly secret information regarding investors' offshore accounts.

While countries such as Netherlands, Cyprus etc are still considered as tax haven choices, Singapore, with an area of 712 square kilometres, an equatorial climate, income tax only on repatriation basis, and a wide treaty network with around 50 countries, is fast becoming a preferred destination. Let us look at some of the relevant information related to this tiny nation.

SINGAPORE'S ADVANTAGE

The corporate tax rate in Singapore is 17 per cent. GST Tax is applicable when annual turnover exceeds S$1 million. Dividends and capital gains earned from foreign subsidiaries/branches aren't liable to tax in Singapore. There is no withholding tax on dividend distribution by Singapore companies. The withholding tax on interest is 15 per cent, and on royalties 10 per cent.

Personal income tax rates in Singapore are one of the lowest globally. Tax rates are progressive and determined by residency. Taxes come into play if the income exceeds S$ 22,000. The maximum rate is 20 per cent for income in excess of S$320,000 per annum. Capital gains aren't taxed, nor are inheritance taxes charged, and the interesting point is that individuals are taxed only on the income earned in Singapore.

A non-resident of Singapore will be taxed on all net income earned in Singapore post deduction of expenses and donations at 15 per cent for employment income, and 20 per cent for director's fees and consultant fees. Estate duty payable on the death of an individual stands abolished since 2008.

Foreigners can set up a company in Singapore with a single shareholder, one resident director with a local address, and a minimum paid up capital of S$1 within a day or two. Though self-registration isn't permitted to foreign individuals or entities, local professional firms can support not only company formation but also arranging of local nominee directors. Foreigners can get employment visa or entrepreneur visa and short-term visa for attending to company matters.

The latest infrastructure, developed capital markets, an educated workforce, comparatively stable political institutions and a low crime rate are considered to be further attractions in addition to the tax benefits. However, on the downside, a few negative aspects, such as high cost of living for employees, mandatory filing of audited accounts of the parent company of an alien nation (control also becomes an issue when a subsidiary is partially owned by another outside organisation), mandatory designation of a working secretary from Singapore etc, need consideration.

The company in this particular case is convinced that Singapore is a location where East meets West — both geographically and culturally — and it provides an alternative gateway to all major Asian markets.

If original return is efiled, so should be the revised return

Centralised Return Processing Scheme, 2011 is out vide NOTIFICATION NO.2/2012[F.NO.142/27/2011-SO(TPL)], DATED 4-1-2012 by which CBDT in exercise of the powers conferred by sub-section (1A) of section 143 of Income Tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes  specifies scheme for processing of returns of income. Here are major points of scheme

Receipt and Acknowledgment of Return of Income.—

There is no major change in mode of filing return by digital signature or without digital signature .Three important points to note however are

1. The date of transmitting the data electronically shall be the date of furnishing the return if the Form ITR-V is furnished in the prescribed manner and within the period specified.
2. In case Form ITR-V furnished after the prescribed time is rejected on account of it being unsigned, illegible, mutilated, bad quality or not as per specification, it shall be deemed that the return in respect of which the Form ITR-V has been filed was never furnished and it shall be incumbent on the person to electronically file the return of income again followed by submission of the new Form ITR-V.
3. The Commissioner may call for fresh Form ITR-V in special circumstances, where the Form ITR-V earlier submitted cannot be considered for technical reasons.

Revised return of income.—

(1) If the original return of income is an electronically filed return, the revised return shall be filed through electronic mode only.

(2)  The Centre will process only the revised return and no further action will be taken on the original return if it has not already been processed.

Invalid or defective return.

(i)  The Commissioner may declare-

(a)  a return invalid for non-compliance of procedure for using any software not validated and approved by the Director General.

(b)  a return defective under sub-section (9) of section 139 of the Act on account of incomplete or inconsistent information in the return or in the schedules or for any other reason.

(ii)  In case of a defective return, the Centre shall intimate this to the person through e-mail or by placing a suitable communication on the e-filing website.

(iii)  A person may comply with the notice regarding defective return by uploading the rectified return within the period of time mentioned in the notice.

(iv)  The Commissioner may, in order to avoid hardship to the person, condone the delay in uploading of rectified return.

(v)  In case no response is received from the person in reply to the notice of defective return, the Commissioner may declare a return as not having been uploaded at all or process the return on the basis of information available.

Processing of Returns.—

(i)  The Centre shall process a valid return of income in the following manner, namely:-

(a)  the sum payable to, or the amount of refund due to, the person shall be determined after credit of such Tax collected at Source (TCS), Tax Deducted at Source (TDS) and tax payment claims which can be automatically validated with reference to data uploaded through TDS and TCS statements by the deductors or the collectors, as the case may be, and tax payment challans reported through authorised banks in accordance with the procedures adopted by the Centre in this regard.

(b)  an intimation shall be generated electronically and sent to the person by e-mail specifying the sum determined to be payable by, or the amount of the refund due to, the person; and

(c)  any intimation to the person to pay any sum determined to be payable shall be deemed to be a notice of demand as per the provisions of section 156 of the Act and all other provisions of the Act shall be applicable accordingly.

Rectification of mistake.—

(i)  With a view to rectifying any mistake apparent from the record under section 154 of the Act, the Centre, on its own or on receiving an application from the person, may amend any order or intimation passed or sent by it under the provisions of the Act.

(ii)  An application for rectification shall be filed electronically to the Centre in the format prescribed and will be processed in the same manner as a return of income-tax.

(iii)  Where the rectification order results in a demand of tax, the order under section 154 of the Act passed by the Centre shall be deemed to be a notice of demand under section 156 of the Income-tax Act.

(iv)  In case of error in processing due to an error in data entry or a software error or otherwise, resulting in excess refund being computed or reduction in demand of tax, the same will be corrected on its own by the Centre by passing a rectification order and the excess amount shall be recovered as per the provisions of the Act.

(v)  Where a rectification has the effect of enhancing an assessment or reducing the refund or otherwise increasing the liability of the person, an intimation to this effect shall be sent to the person electronically by the Centre and the reply of the person has to be furnished through electronic mode only.

10. Adjustment against outstanding tax demand.—The set-off of refund, if any, arising from the processing of a return, against tax remaining payable will be done by using the details of outstanding tax demand lying against the person as uploaded onto the system of the Centre by the Assessing Officer.

Appellate Proceedings.—

(i)  Where a return is processed at the Centre, the appeal proceedings relating to the processing of the return shall lie with Commissioner of Income-tax (Appeals) [CIT(A)] having jurisdiction over the jurisdictional Assessing Officer and any reference to Commissioner (Appeals) in any communication from the Centre shall mean such jurisdictional CIT (Appeals).

(ii)  Remand reports, giving effect to appellate order and any other reports to be furnished before the CIT (Appeals) shall be submitted by the Assessing Officer having jurisdiction as regards the person.

No personal appearance in the Centre.—

(i)  A person shall not be required to appear either personally or through authorised representative before the authorities at the Centre in connection with any proceedings.

(ii)  Written or electronic communication from such person or authorized representative in the format specified by the Centre in this respect shall be sufficient compliance of the query or clarification received from the Centre.

(iii)  The Centre may call for such clarification, evidence or document as may be required for the purpose of facilitating the processing of return and all such clarification, evidence or document shall be furnished electronically.

Service of notice or communication.—

(i)  The service of a notice or order or any other communication by the Centre may be made by-

  a.  sending it by post;

  b.  delivering or transmitting its copy thereof, electronically to the person sent by the Centre’s e-mail;

  c.  placing its copy in the registered electronic account of the person on the official website ; or

  d.  any of the modes mentioned in sub-section (1) of section 282 of the Act.

(ii)  The date of posting of any such communication on official website, e-mail or other electronic medium shall be deemed to be the date of service.

(iii)  The intimation, orders and notices shall be computer generated and need not carry physical signature of the person signing it.

Keep track of your tax return!

You may prepare your tax return yourself, use a tax software, take the help of a CPA or a tax professional or may be you outsource it. However, my question is, do you save a copy of your return?

Most of us do not, and that is a very serious mistake. Why would you need to save a copy of your tax return? The chances are,

Ø      You may have to respond to an IRS notice

Ø      You  may want to make changes to the prepared return

Ø      You may be applying for a home loan

Ø      You may want to plan in advance for your tax and finances.

For all the above cited reasons, one may think taxpayers will be careful around their returns. But alas, the situation has only gone from bad to worse these days.

Suppose you have prepared your own return and filed it online – please take care to do at least any of the following:

1. Print a copy of the return
2. Save the file or
3. Scan the return document (if not the source documents)

Some of you might argue saying that you source your returns to a paid preparer, and the preparer will be available to give you a fresh copy if need be. But, in case the preparer experiences a PC crash and loses the files or has quit the business, you will be helpless.

The Federal Tax office can provide you with a copy of the return, but you will have to shell out a few extra dollars and be prepared to wait for a few weeks. IRS Form 4506 is the form to apply for a copy / transcript of your tax return.

It is in fill-in mode, allowing you to enter information while the form is displayed by an Adobe Acrobat 4.0 product and then print the completed form out. Fill-in forms give you a cleaner crisper printout for your records and for faxing. Of course, take due care to print it out and save your copy!

 You can also avail of a tax account transcript / return transcript from the IRS– however, the waiting time involved is sure to dent the original purpose of requiring the return.

Many people do NOT need actual copies of their returns and can instead request a tax return transcript. Transcripts are free, but copies of the return cost $23 each. In addition, transcripts are usually received in two weeks, but copies take four to six weeks.

Hence, please take care to save a copy of your return always, and store it for a minimum period of 5 years from the time of filing. A bit of preparedness always helps!

Along side, maintaining a digital copy of your supporting documents is also a best practice and will come in handy some day.

Best tax preparation help for you

In the upcoming weeks, the World Wide Web will be flooded with articles relating to finding the right tax professional for your return preparation.

You will be hearing terms such as CPA, RTRP, EA, ERO – what not beside the tax professionals’ names in advertising. What do they all mean?

First and foremost, to prepare a tax return, a preparer needs a PTIN (Preparer Tax Identification Number). This is issued by the IRS to paid preparers so that they need not use the Social Security Numbers on the prepared returns.

As of now, for acquiring a PTIN, no training is needed. However, it is expected that by 2013, a pass in a specially designed minimum competency test will be mandatory for preparation of tax returns.

An RTRP (Registered Tax Return Preparer) will also be required to spend 15 hours annually in tax related continuous education measures. The new program will also include a mandatory background check on tax preparation applicants so as to dig out those with a criminal record. By 2013m, any tax preparation aspirant will need to pass the competency test and get through the background check to acquire the PTIN.

A CPA (Certified Public Accountant) will have an accounting degree. The accountant will have served under a CPA for a specified period and taken up extensive tests. The state issue the CPA certificate, and the requirements vary from state to state. They also need to meet annual continual assessment tests in all areas of accountancy including tax and audit.

A JD (Attorney) is a law school graduate, having passed the state bar exam for practicing law in that state.  They need to have continuing education in all areas of law including taxation.

A preparer, by working for the IRS or taking comprehensive tests in all areas relating to tax qualifies to be an EA (Enrolled Agent). Their continuing education requirement will specifically pertain to taxation for 3 years spread over 72 hours, and can practice in any state.

An ERO is an Electronic Return Originator who can electronically file tax returns. For taxpayers who have prepared their own return or for tax preparers who do not offer e-filing, this is applicable. In case the ERO is also a qualified CPA / RTRP / JD / EA, they can prepare the return too apart from filing it.

So, from the above listed specialists, whom do you need?

If you need to just e-file your return, all you need is the ERO.

If you are looking for a preparer, here are a few pointers to keep in mind:

Ø      Who is recommended? | Check on the IRS certification

Ø      Check out the fee charged | pre-determine how much you can spend

Ø      Ensure accessibility of preparer | what does the preparer have to say?

Ø      List down your other specific requirements

If you mark the 3^rd party designee box on the return, in case issues arise with the IRS, a general preparer can help you on accounting & audit issues. An EA, CPA or JD can represent you on any issue thrown up by the IRS.

These are the major tax preparation options available. Choose what suits you best, good luck with your taxes!

Choose the right professional for your tax preparation!

Tax laws keep changing every year, and they are so complex that the process of claiming any savings on offer is itself more trouble than its worth. You have decided on hired help for tax filing. The helping hand is required to be professionally trained and accredited, and trust worthy. You are ultimately responsible for your tax return although someone else may have prepared it. You sign on the dotted line on the 1040, and so the responsibility to find an ethical and well-informed preparer lies solely with you. A good tax preparer will provide strategic services with speed, precision with an in-depth knowledge of managing multifarious tax situations.

Here are a few pointers to keep in mind while choosing your tax preparer so that you do not end up with an error-ridden tax return:

1. Check on the IRS certification

Always check out the short listed tax preparer’s qualifications, prior history and professional affiliations. Ensure the preparer has the IRS accredited Preparer Tax Identification Number (PTIN). Check out your state accountancy board, CPA council or your local IRS office to ensure there are no grievances against the person you are planning to hire.

2. Check out the fee charged

Ideally, the service charges should not be a percentage of your supposed refund. This is usually an indicator that tax boundaries will be pushed that much more, and unlawful practices adopted to get you more money than you are legally entitled to just because your preparer can get more out of your return.

Preparers who promise to obtain large refunds are best avoided – any tax return properly prepared will have all preparers come up with essentially similar numbers on tax & refunds.

3. Ensure accessibility of tax preparer

Make sure you hire a preparer who is around even after the tax filing season ends so that you can have help at hand in case of any possible questions from the IRS.

4. Always review your tax return

Read through your prepared tax return thoroughly and attempt to understand the entries made. If you are uncertain about any entry, have it clarified with your preparer. In case a satisfactory answer is not forthcoming, do not approve the return. Any preparer who is unable / unwilling to explain entries made on your 1040 and other schedules is inept and unworthy of hiring.

Surely, checking out the credentials of your tax preparer is time-consuming. However, it is time well used up considering the potential advantages on offer.

Outsource accounting for lesser costs and improved efficiency!

Make this year your most successful yet with GKM’s Universal Accountant.

There has been incredible development in the field of information technology, opening up immense potential for business functionality in a manner only dreamt of before.

In today’s competitive business environment, outsourcing of accounting services is sure to make account handling simpler.

A near perfect blend of fast internet connections and strong security / encryption policies have made the outsourcing of significant functions such as accounting & tax preparation.

To make it better still, outsourcing your accounting work to a virtual accountant is practical and cost-saving. There are businessmen who need the comfort of a full-time accountant, but are unwilling to go through the recruitment hassles or part with the necessary office space or expenses. A virtual accountant / outsourced accounting services is a perfect fit for the above category of businesses.

GKM Universal Accountant can be hired by:

1. Entrepreneurs
2. Small & Medium Business Groups
3. Non-profit organizations

among others.

GKM’s Universal Accounting Department provides your company with expert professional bookkeeping services, presenting an opportunity for your top managers to plan for the future with confidence.

Advantages of hiring GKM’s virtual accounting services:

1. Quality assurance – a ISO 9001:2008 certified company
2. Freedom from varied hassles of recruiting and training accountants
3. Savings on office space & expenses for internal accountants
4. Freed up time to focus on core strategic aspects of business
5. Availability of class services of experienced, dedicated and well trained, tested and specialized team of CPAs and CAs who speak your language.
6. Space to manage your business accounts on a real-time basis with regular updates on latest regulations.
7. Data confidentiality – balanced security architecture at all levels.